Airline executives face intensifying pressure from persistent fuel costs, reigniting the debate over hedging strategies. Jet fuel prices have surged following US military actions in the Middle East and remain at elevated levels. While spot prices spiked in late February, the steady rise in future delivery rates has prompted carriers to rethink 2027 plans.
Major US carriers like Delta have cut December profit forecasts, projecting an additional $6 billion in full-year costs. Delta and American Airlines do not hedge fuel, accepting profit volatility. American recently reported that a $1 per gallon increase added $1 billion to fourth-quarter costs.
Analysts have downgraded American's 2027 earnings from $1.6 billion to $720 million. European carriers, who mostly hedge, have not fully offset surging costs and face a renewal dilemma: risk higher market prices or risk being stuck with costly hedges if demand falls. Historical precedents, such as the 2014 crude price tumble, devastated Cathay Pacific ($2.2 billion loss) and Delta ($3.5 billion loss), ending Delta's hedging program entirely.
Despite hedging, share performance has diverged; Delta is up 11% while IAG is down 3%. Ryanair's 80% hedge through March 2027 at less than half spot price has not prevented share declines. A strong argument exists to abandon hedging, which would simplify investment stories and allow focus on operational skills rather than financial wizardry, even introducing new volatility for some carriers.
Source: Financial Times Companies · Summarized by HeadlinesBriefing